Private equity firms are driven by numbers
–larger the better! The first thing they
do after making a huge investment is improving the information system of the business.
It enables them figure out which services or products are in demand and what
the costs really are.
Prior to investigating the details of current
information system, the invested would like to meet the company owner. What
they would be interested to discuss? Have a look!
Cash Flow: Net income is no way insignificant, private equity investors are
focused on cash flow more. The real value of any business is based on EBITDA (earnings
before interest, taxes, depreciation, and amortization) for them. Better EBITDA
can enable them sell the business in profit.
Liquidity: PE investor would want weekly, monthly, and quarterly cash
flow reports to ensure the company remains within the liquidity agreement negotiated
with the lenders. It’s next to impossible to forecast liquidity requirement,
but modeling helps avoid crisis.
Product Evaluation: Product-by-product analysis can help
finding the true margins on each product. In service based
businesses, focus is more on how contracts are bid and especially on avoiding
contracts that improves revenue but aren’t all that are profitable.
Industry-driven Metrics: Every business has its own core metric. The PE
investors would be able to provide with a better understanding which metrics should
the company focus on.
Expense Control: The new investor would dig deep into the
current expenses; try to find out more about the existing policies, and why specific
expenses have spiked, and how it was controlled.
Synopsis
The above 5 metrics, matter a lot for any PE
firm. It gives a sneak peek how the private equity firms in India thinks about before
investing in the company. So, be prepared for it as these metrics are the
backbone that can bring any company closer to getting private equity funds.
